In case of mergers, sometimes it happens that minority shareholders are opposed to the deal because they are not paid the fair price of shares. Under appraisal rights, shareholders who oppose a merger have the right to request that a third party determine the value of the share and to demand fair price of their shares. Using this appraisal, a company must buy back the shares from investors who want to withdraw from the company’s pool of shareholders.
There are number of reasons for which minority shareholder can oppose certain business transaction like mergers. Shareholders may be getting less price than the true worth of shares. They may oppose the merger on the basis of ethical standards. They may feel that merger will not benefit the company in the long run. In such cases, minority shareholders can exercise their appraisal rights.
In order to exercise appraisal rights minority shareholders must vote against corporate actions to which they are opposed and file to indicate that they intend to exercise their right of appraisal. People cannot decide after the fact that the merger is unfavourable and force the company to buy back their stock at the appraised value.